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I am not sure if I am disagreeing with Fil, but I am agreeing with Bennet. When the bottom falls off the Homebuilder's profits, it will drop into the abyss. Homebuilders have absolutely no recurrence of revenues in their business. None. Nada. Nyet (I thought I'd throw some Russian in there).

Let's take a company that has incredible recurring revenues, Becton Dickenson (BDX) for example; it makes needles and syringes which happen to be disposable - you use it once and throw it away. Continuous demand for needles depletes the supply. Homebuilders are quite the opposite. Once a house is built and purchased, it ultimately increases a future supply. Remember, new homes compete with existing homes. For a homebuilder to increase sales it has to sell as many homes as it did last year (assuming prices stay constant) plus some. Where Becton Dickenson doesn't compete with its past (as the needles and synergies it sold last year are already in the dumpster), the past will haunt homebuilders for a long time as homes are a very long term asset.

People who want to buy a new home will have plenty of choices available from the ones financed with cheap money (not so cheap anymore) over the past couple of years.

Position in BDX

Mini-Minyan Mailbag - Kevin Depew - 2:52 PM

Prof. Kev -

Can you take a look at TetraTech (TTEK)? I think you mentioned it as a breakout last week. If so, do you see any potential price target? It seems to be holding up on a down day.

Minyan Scott

MS -

I do like stocks that outperform the broad market on down days. That speaks volumes about underlying demand, especially when the chart shows demand firmly in control.

TTEK is now testing important resistance at 18.50, which dates back to levels last seen in 2004. A move to 19 would break a multi-year spread triple top. On a vertical count from a .25x3 chart, the price objective based on the most recent breakout is 24.75. There are no TD-Sequential signals in effect right now, though a TD-Sequential setup has begun with the recent breakout above 17.

We expect this break in the XAU to - Tom Peterson - 2:11 PM

1. test the 34-day e.m.a. and then rebound. Note there is also support from 136 - 140 from trading earlier this month. We'd like to see the CCI (8) also dip below -100 and then reverse for the bounce to gain traction. 2. the rebound will either test the recent high and turn away , or go on to higher highs. We want to watch for divergences between the XAU , HUI and the bullion as the main clue as to whether the rebound will fail or go on to greater heights.

Therefore, it would seem the next good buying opportunity will come on a test of the 34-day e.m.a. (which is now at 140 and rising). It is worth it for a *free* look at whether new highs can be made. Significant tops in bullion are generally not seen until the mining stocks begin to underperform the bullion.

A couple of other odds and ends as it relates to interest rate - Bennet Sedacca - 1:31 PM

Keep your eyes peeled on the UTY index (see chart here), which is now sitting squarely on the 200-day moving average and major uptrend line. As we have said in the past, they are an interesting 'tell' for the direction of interest rates and stocks' prices down the road. A break would be a definite warning sign.

As for the 3 year Treasury auction, I would call it sloppy. The bid to cover ratio was 2.03 (meaning there were only 2.03x bids as notes offered). This is the lowest since last February's auction and compares with November's 2.42 ratio. In addition, only 22 percent of buyers were 'indirect bidders' such as foreign central banks, signaling tepid demand by foreigners. This is down from 44.5% in the previous 6 sales, according to Bloomberg. After all, they already own 52%! How many can they buy?

We have 10's and 30's later in the week and then some serious inversion as the when-issued bonds start trading 'regular way' or 'on the run.' Bonds are little changed after the auction.

Position in various Treasury securities

New Kid In Town - David Miller - 10:42 AM

State Street Advisors has launced a new biotech ETF. The S&P Biotech Select Industry Index (XBI) contains 45 biotechnology and biopharmaceutical stocks weighted from 1.7% to 3.20% of the ETF. The selected stocks seem to be tilted towards those companies with either some revenues or expected near-term news on pivotal programs. I notice the top most heavily shorted biotech companies by percentage of float have a fairly good representation on this list. Strangely, Genentech (DNA) is not represented in the ETF and Chiron (CHIR) is (which is about to be bought).

While this ETF is better than some other recent attempts, it still does not represent a broad swath of development-stage biotechnology companies. The NASDAQ Biotech Index (NBI) still does a better job of that despite the skew caused by overweighting of Amgen (AMGN) and a couple of other companies.

I would expect the XBI to be used mostly as a hedge by funds who "short the typical suspects" and would be surprised to learn it wasn't designed with exactly that in mind. The ETF was created 1/25 and there is an option chain.

Probe part deux arrives as Boo knocks anew at S&P 1260. This is an obvious 'stop' for alotta bovine so be wary of quick vacuums on the other side of that ride.

I'm furiously eyeing the NYSE internals (9:5 negative), the financials (hanging tough above BKX 101.5), beta (Google -15) and the macro (commodities under pressure) as we noodle through this struddle.

While I have you, a few Minyans have asked if the drillers are sporting dandruff. I "see" what they're looking at but I've found that these patterns are more reliable with more elongated time horizons (not the case). So you know, and if you're drillin'.

As I often suggest, things are actually worse than they appear. Approximately 10% of the new orders are derived from the "pctg. of completion" method applied to condo developments not actual orders. It's a messy system based on expenditures rather than sales or closings. Back those numbers out and single family home orders are in crash mode.

Position in TOL

Bull Fight - John Succo - 10:14 AM

One of the biggest problems with the globalization experiment has been the dropping savings rate, but more importantly, the lack of income growth in the U.S. Bulls repeatedly talk about how capital gains have replaced income. They seem to think them the same; that capital gains will forever rise and are somehow as safe as income generation. We disagree. They are not the same, not even close.

Lately, bulls have been trying to hedge that argument, saying that organic income growth is accelerating and will offset the downturn in the housing market and its corresponding ATM machine. The weather distorted jobs report in their minds supported that view (even though it came in worse than expectations and would have been even worse due to the birth-death adjustment).

Again, we do not agree that income generation is accelerating and believe the opposite is true. National accounts data show that the year over year trend in after-tax income per capita is now turned negative (the first time since 1960). This trend is now weaker than have occurred in the past few recessions. PDI per capita is now down 2.8% year over year.

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